Employers hit by taxi change

Thursday 24 March 2011 12:04 BST

Extra charge: George Osborne scrapped the late-night taxi relief

City law firms, investment banks, bars and other workplaces who pay for late-night and early-morning taxis for workers, will see their bills for the expense soar following the Budget's bonfire of "excessive" taxation.

George Osborne scrapped the late-night taxi relief, which means that staff who are reimbursed cab fares by their employers will have their expenses taxed and will not receive the full amount.

Most businesses will take on the tax burden, meaning a £20 taxi fare could end up costing them over £45.

Mike Nagle, employment tax expert at PwC, said: "Employers, predominantly those in major cities where late-night working is still common, will want to continue to ensure that their employees arrive home safely - but this may soon come with some significantly increased costs.

"As it is unlikely that they will want employees to suffer tax on such journeys, businesses would become liable to pay both grossed up tax and National Insurance on the benefit, as well as the taxi fares themselves."

The abolition of tax relief on late-night taxi journeys is due to kick in from next year.

Accountants warned the Revenue could face difficulties getting the tax change into law.

"The abolition may face significant opposition during the consultation period," Nagle said. "It will bring extra costs to many businesses.

So how does a £20 taxi bill run up by a night owl employee turn into a £45 cost to the employer?